Sometimes, when you are faced with severe, financial stress, you may consider seeking protection from your creditors through the filing of bankruptcy. This may prove to be a difficult decision – especially when you are self-employed as a sole proprietor of a small business or if you work as an independent contractor.
The decision to file for bankruptcy is not one that is taken lightly. You have the option of filing for
Chapter 7 or
Chapter 13 bankruptcy and the most important thing is to understand your options. The chapter that you select is based on your income. Therefore self-employed bankruptcy is even more complicated. If you qualify for Chapter 7, your debts may be completely discharged through the liquidation process. However, you may have the resources to pay off some of your debts through Chapter 13.
Keeping A Record of Your Earnings
Similar to those who are employed by others, self-employed workers may file for bankruptcy if their debts far exceed their capacity to pay. While those who are W-2 employees have a record of their wages, it can be more difficult to verify income when you are self-employed. This is because you may not receive a regular payment or your payments may not have been well-documented. Additionally, those who own a business may not be taking wages, but rather putting the money back into the business.
When you file for bankruptcy you are obligated to present the court with evidence that verifies your income for the six months prior to the date of your filing. This income is what determines whether you qualify for Chapter 7 or if you must file under Chapter 13.
Verifying Income
The best thing that you can do is to track your business income and your business expenses. Doing so through a software program, such as QuickBooks, or a spreadsheet is necessary for that it helps to verify your income and provides you with records to share with the court. The following documents may prove helpful with this process:
- Copies of Checks
- Invoices
- Tax Returns
- Contracts
- Cash App/PayPal Records
- Emails or Texts that Show Payment Amounts
- Receipts for Payments Made in Cash
- Bank Statements Showing Cash and Check Deposits
Seeking Professional Financial Help
Though a bit more expensive, an accountant may also prove most beneficial when it comes to verifying your income. Speaking with a financial professional can help you to understand which documents are most needed.
It is also in your best interest to consult with a qualified bankruptcy attorney, who can ensure that you do not make mistakes that could threaten your success to discharge your debts or complete a repayment plan.
Since there may be confusion as to the value of your business (which are business assets vs. personal assets) as a self-employed individual, it is extremely helpful to work with someone who can clear these things up for you to be sure you are making the right decisions.
What Can You Do?
If you or a loved one is considering filing for bankruptcy, it is important that you understand all of the potential implications that it can have on your life and whether bankruptcy is the best option in your current situation. To do so, it may be in your best interest to consult with a knowledgeable and experienced Ohio bankruptcy attorney. At Miami Valley Bankruptcy, we understand bankruptcy law and will help you to best navigate your situation. To learn more or to schedule a free consultation, contact us today!